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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____
COMMISSION FILE NUMBER: 000-30289
PRAECIS PHARMACEUTICALS INCORPORATED
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 043200305
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
830 WINTER STREET, WALTHAM, MA 02451-1420
-----------------------------------------------------
(Address of principal executive offices and zip code)
(781) 795-4100
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of July 31, 2002, there were 51,782,376 shares of the registrant's common
stock, $.01 par value, outstanding.
PRAECIS PHARMACEUTICALS INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2002
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets - December 31,
2001 and June 30, 2002 (unaudited) 3
Condensed Consolidated Statements of Operations (unaudited)
- three and six months ended June 30, 2001 and 2002 4
Condensed Consolidated Statements of Cash Flows (unaudited)
- six months ended June 30, 2001 and 2002 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
PART II. OTHER INFORMATION 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURE 28
EXHIBIT INDEX 29
Page 2 (of 29)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
PRAECIS PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, JUNE 30,
2001 2002
-------------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................. $144,685 $129,775
Marketable securities................................. 121,531 108,257
Accounts receivable................................... 458 -
Prepaid expenses and other assets..................... 783 1,555
-------------- ------------
Total current assets............................ 267,457 239,587
Property and equipment, net............................... 74,200 73,251
Due from officer.......................................... - 1,000
Other assets.............................................. 468 304
-------------- ------------
Total assets.................................... $342,125 $314,142
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $30,721 $31,746
Accrued expenses...................................... 7,708 5,140
-------------- ------------
Total current liabilities....................... 38,429 36,886
Long-term debt............................................ 33,000 33,000
Commitments and contingencies
Stockholders' equity:
Common Stock, $0.01 par value; 200,000,000 shares
authorized; 51,116,135 shares in 2001 and
51,779,564 shares in 2002 issued and outstanding.. 511 518
Accumulated other comprehensive income................ 730 458
Additional paid-in capital............................ 353,887 354,613
Accumulated deficit................................... (84,432) (111,333)
-------------- ------------
Total stockholders' equity...................... 270,696 244,256
-------------- ------------
Total liabilities and stockholders' equity...... $342,125 $314,142
============== ============
SEE ACCOMPANYING NOTES.
Page 3 (of 29)
PRAECIS PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three months ended Six months ended
June 30, June 30,
----------------------- -----------------------
2001 2002 2001 2002
--------- -------- -------- --------
Corporate collaboration revenue............. $ 3,167 $ 1,029 $ 5,749 $ 1,029
Costs and expenses:
Research and development................ 14,504 13,518 26,714 24,854
Sales and marketing..................... 3,280 274 6,379 714
General and administrative.............. 1,383 2,743 2,977 4,857
--------- -------- -------- --------
Total costs and expenses............ 19,167 16,535 36,070 30,425
--------- -------- -------- --------
Operating loss.............................. (16,000) (15,506) (30,321) (29,396)
Interest income, net........................ 3,003 1,291 5,477 2,495
--------- -------- -------- --------
Net loss.................................... $(12,997) $(14,215) $(24,844) $(26,901)
========= ======== ======== ========
Basic and diluted net loss per share........ $ (0.26) $ (0.27) $ (0.51) $ (0.52)
Weighted average number of basic
and diluted shares outstanding........... 50,850 51,727 48,463 51,572
SEE ACCOMPANYING NOTES.
Page 4 (of 29)
PRAECIS PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
------------------------
2001 2002
--------- ---------
OPERATING ACTIVITIES:
Net loss...................................................... $ (24,844) $(26,901)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization.............................. 1,046 2,354
Stock compensation......................................... (449) (196)
Changes in operating assets and liabilities:
Accounts receivable..................................... 580 458
Refundable income taxes................................. 58 -
Unbilled revenue........................................ 90 -
Prepaid expenses and other assets....................... 159 (608)
Due from officer........................................ - (1,000)
Accounts payable........................................ 5,632 1,025
Accrued expenses........................................ 752 (2,568)
Deferred revenue........................................ (2,354) -
--------- ---------
Net cash used in operating activities......................... (19,330) (27,436)
INVESTING ACTIVITIES:
Purchase of available-for-sale securities..................... (119,846) (49,342)
Sales or maturities of available-for-sale
securities.................................................. 37,604 62,344
Purchase of property and equipment............................ (17,125) (1,405)
--------- ---------
Net cash (used in) provided by investing activities........... (99,367) 11,597
FINANCING ACTIVITIES:
Net follow-on offering proceeds............................... 175,892 -
Proceeds from debt issuance................................... 9,000 -
Proceeds from exercises of stock options...................... 1,864 929
--------- ---------
Net cash provided by financing activities..................... 186,756 929
--------- ---------
Net increase (decrease) in cash and cash equivalents.......... 68,059 (14,910)
Cash and cash equivalents, beginning of period................ 132,207 144,685
--------- ---------
Cash and cash equivalents, end of period...................... $ 200,266 $129,775
========= =========
SEE ACCOMPANYING NOTES.
Page 5 (of 29)
PRAECIS PHARMACEUTICALS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by PRAECIS PHARMACEUTICALS INCORPORATED (the "Company") in accordance
with generally accepted accounting principles and pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. It is suggested
that the financial statements be read in conjunction with the audited financial
statements and the accompanying notes included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001.
The information furnished reflects all adjustments which, in the
opinion of management, are considered necessary for a fair presentation of
results for the interim periods. Such adjustments consist only of normal
recurring items. It should also be noted that results for the interim periods
are not necessarily indicative of the results expected for the full year or any
future period.
The preparation of these financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
Company's accounts and the accounts of its wholly owned real estate subsidiary.
All significant intercompany account balances and transactions between the
companies have been eliminated.
NET LOSS PER SHARE
Basic net loss per share is based on the weighted average number of
common shares outstanding. For the three and six month periods ended June 30,
2001 and 2002, diluted net loss per common share is the same as basic net loss
per common share as the inclusion of common stock equivalents, including the
effect of stock options and warrants, would be antidilutive.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130, REPORTING
COMPREHENSIVE INCOME, establishes standards for the reporting and display of
comprehensive income (loss) and its components in the consolidated financial
statements. The Company's accumulated other comprehensive income is comprised
primarily of net unrealized gains or losses on available-for-sale securities.
For the three and six months ended June 30, 2001 and 2002, respectively,
comprehensive loss was as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2001 2002 2001 2002
-------------------------- --------------------------
Net loss......................................... $(12,997) $(14,215) $(24,844) $(26,901)
Changes in comprehensive loss:
Net unrealized holding gains (losses) on
investments................................. 10 364 22 (272)
----------- ----------- ----------- -----------
Total comprehensive loss......................... $(12,987) $(13,851) $(24,822) $(27,173)
=========== =========== =========== ===========
Page 6 (of 29)
SIGNIFICANT ACCOUNTING POLICIES
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, BUSINESS COMBINATIONS, and SFAS No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS, effective for fiscal years beginning after December 15, 2001.
Under these rules, goodwill will no longer be amortized but will be subject to
annual impairment tests in accordance with the statements. Other intangible
assets will continue to be amortized over their useful lives. The Company
applied these rules on accounting for goodwill and other intangible assets
beginning in the first quarter of 2002. Application of the provisions of these
statements did not have any effect on the Company's consolidated financial
position or consolidated results of operations since it does not have any
goodwill or intangibles at this time.
On October 20, 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS ("SFAS No.144"). SFAS No. 144
supersedes SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
FOR LONG-LIVED ASSETS TO BE DISPOSED OF, however it retains the fundamental
provision of that statement related to the recognition and measurement of the
impairment of long-lived assets to be held and used. In addition, SFAS No. 144
provides additional guidance on estimating cash flows when performing a
recoverability test, requiring that a long-lived asset to be disposed of other
than by sale be classified as an asset held for sale until it is disposed of,
and establishes more restrictive criteria to classify an asset as held for sale.
SFAS No. 144 became effective in the first quarter of 2002. Application of SFAS
No. 144 did not have any effect on the Company's consolidated financial position
or consolidated results of operations since the Company does not believe that
there are any impairment indicators at this time.
3. MARKETABLE SECURITIES
Management determines the appropriate classification of debt securities
at the time of purchase and reevaluates such designation as of each balance
sheet date. Debt securities held by the Company are classified as
available-for-sale and are carried at estimated fair value in cash equivalents
and marketable securities. Unrealized gains and losses are reported as
accumulated other comprehensive income in stockholders' equity. The amortized
cost of debt securities in this category is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in interest income. Realized gains and losses on available-for-sale securities
are included in interest income and expense. The cost of securities sold is
based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in interest income. The
Company's marketable securities as of June 30, 2002 are as follows (in
thousands):
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ------------- ------------- --------------
U.S. government agencies............. $ 67,897 $ 262 $ (213) $ 67,946
Commercial paper..................... 39,902 409 --- 40,311
------------- ------------- ------------- --------------
Total marketable securities....... $107,799 $ 671 $ (213) $108,257
============= ============= ============= ==============
4. DUE FROM OFFICER
In May 2002, the Company extended a $1.0 million loan to an officer in
connection with the officer's acceptance of employment with the Company. The
loan is full recourse, uncollateralized, bears no interest and becomes due and
payable in May of 2012. Under the terms of the promissory note (the "Note")
executed in connection with the loan, 10% of the original loan principal will be
forgiven annually on the anniversary date of the Note, provided that the officer
remains an employee of the Company. Upon the officer's voluntary termination of
employment with the Company, with certain exceptions, and upon termination by
the Company of the officer's employment for cause, the Note becomes immediately
due and payable.
Page 7 (of 29)
5. ACCOUNTS PAYABLE
Accounts payable consists principally of trade accounts payable and the
Company's share of Plenaxis program expenses under the corporate collaboration
agreement between the Company and Amgen Inc. ("Amgen"). At December 31, 2001 and
June 30, 2002, trade accounts payable included $29.1 million due to Amgen. (See
Note 6)
6. CORPORATE COLLABORATION AGREEMENTS
In March 1999, the Company entered into a binding agreement in
principle with Amgen for the development and commercialization of the Company's
Plenaxis products. In September 2001, Amgen notified the Company that it was
terminating the Amgen agreement effective December 17, 2001. As a result of the
termination of the Amgen agreement, all licenses for Plenaxis granted to Amgen
under the agreement, and all rights of Amgen in the Plenaxis program, have
terminated. As of June 30, 2002, the Company has accrued an estimate of its
potential liability of approximately $29.1 million under its agreement with
Amgen. The Company expects to finalize a termination agreement with Amgen in the
third quarter of 2002.
In May 1997, the Company entered into a license agreement with
Synthelabo S.A., which subsequently merged with Sanofi S.A. forming
Sanofi-Synthelabo S.A. ("Sanofi-Synthelabo"), for the development and
commercialization of the Company's Plenaxis products. In October 2001,
Sanofi-Synthelabo notified the Company that it was terminating the
Sanofi-Synthelabo agreement effective December 31, 2001. As a result of the
termination of the Sanofi-Synthelabo agreement, all licenses for Plenaxis
granted to Sanofi-Synthelabo under the agreement, and all rights of
Sanofi-Synthelabo in the Plenaxis program, have terminated. In June 2002, a
final reimbursement payment of $1.0 million was received by the Company and
is included as corporate collaboration revenue in the accompanying financial
statements.
Page 8 (of 29)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SHOULD BE READ TOGETHER WITH THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND
ACCOMPANYING NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS FORM 10-Q.
THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THAT INVOLVE RISKS AND
UNCERTAINTIES. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL INFORMATION
SET FORTH HEREIN ARE FORWARD-LOOKING AND MAY CONTAIN INFORMATION ABOUT FINANCIAL
RESULTS, ECONOMIC CONDITIONS, TRENDS AND KNOWN UNCERTAINTIES. OUR ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THESE FORWARD-LOOKING STATEMENTS
AS A RESULT OF A NUMBER OF FACTORS, WHICH INCLUDE THOSE DISCUSSED IN THIS
SECTION AND ELSEWHERE IN THIS REPORT, AND THE RISKS DISCUSSED IN OUR OTHER
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. READERS ARE CAUTIONED NOT
TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH REFLECT
MANAGEMENT'S ANALYSIS, JUDGMENT, BELIEF OR EXPECTATION ONLY AS OF THE DATE
HEREOF. PRAECIS UNDERTAKES NO OBLIGATION TO PUBLICLY REISSUE OR MODIFY THESE
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES THAT ARISE AFTER
THE DATE HEREOF.
OVERVIEW
Since our inception, we have been engaged in developing drugs for the
treatment of a variety of human diseases. Our lead program is the development of
Plenaxis(TM) (abarelix for injectable suspension), a drug for the treatment of
diseases that respond to the lowering of hormone levels. We are developing
Plenaxis for the treatment of hormonally responsive advanced prostate cancer and
endometriosis.
We are also conducting clinical trials of Apan, our proprietary drug
candidate for the treatment of Alzheimer's disease. In addition, we have a
number of other product candidates in the research or preclinical development
stage.
We had entered into collaborations with Amgen Inc. and
Sanofi-Synthelabo S.A. to develop and commercialize our Plenaxis products. In
September 2001, Amgen notified us that it was terminating its agreement with us.
In October 2001, Sanofi-Synthelabo notified us that it was terminating its
agreement with us. Both terminations were effective in December 2001. As a
result, all of the licenses for Plenaxis granted to Amgen and Sanofi-Synthelabo
under these agreements, and all rights of Amgen and Sanofi-Synthelabo in the
Plenaxis program, have terminated. We are working to finalize agreements with
Amgen and Sanofi-Synthelabo to provide for, among other things, mutual releases
and, with respect to Amgen, a final cash payment to Amgen.
Since our inception, we have had no revenues from product sales. We
have received revenues in the form of signing, performance-based, cost sharing
and contract services payments from corporate collaborations. We do not
anticipate receiving any additional revenues under current or past collaboration
agreements. Accordingly, we do not expect to have any revenues for the
foreseeable future other than interest income.
Our accumulated deficit as of June 30, 2002 was approximately $111.3
million.
At June 30, 2002, we had 133 full-time employees, 103 of whom were
engaged in research and development activities, compared to 123 full-time
employees at June 30, 2001, 92 of whom were engaged in research and development
activities. Substantially all of our expenditures to date have been for drug
development and commercialization activities and for general and administrative
expenses.
Due to the costs associated with the continued development of Plenaxis
for the treatment of hormonally responsive advanced prostate cancer, as well as
other research and development and general and administrative expenses, and our
lack of revenues, we had a net operating loss for the first half of 2002. For
these same reasons, we expect to have net operating losses for the remainder of
2002 and for several years thereafter. We do not expect to generate operating
income unless, and not until several years after, we receive FDA approval to
market Plenaxis for the treatment of a defined sub-population of hormonally
responsive advanced prostate cancer patients. We will need to receive regulatory
approval to market any of our future products.
Page 9 (of 29)
The termination of our collaboration agreement with Sanofi-Synthelabo
became effective as of December 31, 2001 and we received a final reimbursement
payment of approximately $1.0 million during the second quarter of 2002. Through
June 30, 2002, we recognized an aggregate of approximately $24.7 million in
non-refundable fees and performance-based payments, and approximately $11.7
million in reimbursement for ongoing development costs, under the
Sanofi-Synthelabo agreement. As noted above, we are working to finalize an
agreement with Sanofi-Synthelabo regarding the termination of its license
agreement with us.
The termination of our collaboration agreement with Amgen became
effective as of December 17, 2001. During 2002 we have recognized no additional
revenues under that agreement. Under the Amgen agreement, Amgen paid the first
$175.0 million of all authorized costs and expenses associated with the
research, development and commercialization of Plenaxis products in the United
States. Amgen's initial $175.0 million funding commitment was fulfilled during
the third quarter of 2000. Following Amgen's completion of this funding, we
became responsible for one-half of all subsequent United States research and
development costs for Plenaxis products. Additionally, the agreement provided
that following Amgen's completion of its $175.0 million funding commitment, we
were required to reimburse Amgen for one-half of the costs associated with
establishing a sales and marketing infrastructure for Plenaxis products in the
United States. Through December 31, 2001, we recognized an aggregate of
approximately $121.7 million of revenues under the Amgen agreement. As noted
above, in the third quarter of 2002 we expect to finalize an agreement with
Amgen regarding the termination of its agreement with us. We have accrued
approximately $29.1 million as an estimate of our potential liability under the
Amgen agreement. However, the final cash payment to Amgen made under the
termination agreement may be less than this estimate.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
Revenues for the three months ended June 30, 2002 decreased 68% to
approximately $1.0 million, from approximately $3.2 million for the
corresponding period in 2001. The decrease in revenues was the result of the
termination during the fourth quarter of 2001 of our collaboration agreements
with Amgen and Sanofi-Synthelabo. During the second quarter of 2002, we received
a final reimbursement payment from Sanofi-Synthelabo. We do not expect to
receive any additional revenues under these agreements.
Research and development expenses for the three months ended June 30,
2002 decreased 7% to approximately $13.5 million, from approximately $14.5
million for the corresponding period in 2001. The slight decrease in expenses
reflects reduced spending in our endometriosis clinical program, and the
termination during the third quarter of 2001 of our clinical program for
Latranal, an in-licensed compound that was in development for the relief of
musculoskeletal pain. The reduced spending in our endometriosis program resulted
from the conclusion, in March of 2002, of our phase II/III endometriosis
clinical study. These decreases were partially offset by increased spending in
our preclinical and manufacturing development activities for PPI-2458, our
candidate in development for the treatment of rheumatoid arthritis and certain
types of cancer.
Members of our research and development team typically work on a number
of projects concurrently. In addition, a substantial amount of our fixed costs
such as facility depreciation, utilities and maintenance are shared by our
various programs. Accordingly, we have not and do not plan to separately track
the costs for each of our research and development programs. We estimate that
during the three months ended June 30, 2002 and 2001, the majority of our
research and development expenses were related to manufacturing costs, clinical
trial costs, salaries and lab supplies related to our prostate cancer and
endometriosis clinical programs. The remaining research and development costs
were incurred primarily in our Alzheimer's disease clinical program, our
PPI-2458 preclinical research program and our other research programs.
We began our clinical program to develop Plenaxis for the treatment of
prostate cancer during 1996. In December 2000, we submitted a new drug
application, or NDA, to the FDA for Plenaxis for the treatment of hormonally
responsive advanced prostate cancer. However, the FDA raised concerns over the
occurrence of allergic reactions in a small subset of clinical trial patients.
In addition, the FDA expressed concern that, in a subset of patients treated
beyond the three-month pivotal study time frame,
Page 10 (of 29)
testosterone suppression was not maintained. We have proposed various
alternatives to the FDA to address these issues and improve the risk/benefit
profile of Plenaxis. Based upon discussions with the FDA at a recent meeting, we
now intend to seek approval for Plenaxis for use in a defined sub-population of
advanced prostate cancer patients for whom the use of existing commercially
available hormonal therapies may not be appropriate. The specific sub-population
of patients will be determined through additional discussions with the FDA. We
anticipate resubmitting to the FDA during the first quarter of 2003 our NDA
seeking approval for this indication. Based on our recent meeting with the FDA,
we are considering our options regarding a subsequent submission to the FDA to
support approval for the use of Plenaxis in a broader advanced prostate cancer
patient population.
In addition, we have completed patient accrual in our previously
disclosed clinical study in which patients are being treated with Plenaxis for
three months and then switched to a commercially available hormonal therapy for
an additional two months of treatment. We intend to include safety data from
this study in our NDA resubmission. We can give no assurance this clinical study
will yield positive results or that the results, even if positive, will satisfy
FDA concerns that have been or may be raised. Moreover, we cannot assure
investors that we will be successful in obtaining approval for the
commercialization of Plenaxis for the treatment of any portion of the hormonally
responsive advanced prostate cancer patient population or for any other
indication.
In 1998, we began our clinical program to develop Plenaxis for the
treatment of endometriosis. We completed a phase II/III study of Plenaxis for
the treatment of pain associated with endometriosis in March 2002. Results from
this study have suggested that we may be able to utilize a lower dose or a more
prolonged dosing interval in future studies to reduce drug exposure and
attendant bone mineral density loss, a known consequence of hormonal therapies
that lower estrogen levels. Accordingly, in June 2002, we initiated enrollment
in a pharmacokinetic study of Plenaxis for the treatment of endometriosis. We
anticipate completing the pharmacokinetic study by year-end and thereafter
submitting the results to the FDA and proceeding to evaluate the design of
potential additional trials.
We began our clinical program for Apan in 2000. We are currently
conducting a normal volunteer, phase I dose escalation study of Apan. After the
results of this study are reviewed with the FDA, we anticipate beginning a new
phase I study during the first half of 2003 in which we intend to evaluate the
safety and pharmacokinetics of Apan in individuals suffering from Alzheimer's
disease.
As we continue ongoing clinical trials and related manufacturing and
development activities for Plenaxis for prostate cancer and endometriosis,
continue our Apan clinical program, and continue spending on preclinical
activities, we expect that our research and development expenses may increase
during the remainder of 2002 and thereafter. We anticipate that the
substantial majority of those research and development expenses over the next
few years will be focused on the development of Plenaxis for the treatment of
hormonally responsive advanced prostate cancer and endometriosis. In
addition, we currently have several other ongoing research and development
programs. Using industry estimates, typical drug development programs may
last for ten or more years and may cost hundreds of millions of dollars to
complete. As our programs progress, we will assess the possibility of
entering into corporate collaborations to offset a portion of development
costs. The ultimate success of our research and development programs and the
impact of these programs on our operations and financial results cannot be
accurately predicted and will depend, in large part, upon the outcome and
timing of many variables outside of our control.
Sales and marketing expenses for the three months ended June 30, 2002
decreased 92% to approximately $0.3 million, from approximately $3.3 million for
the corresponding period in 2001. The decrease in sales and marketing expenses
was due to the repositioning of our prostate cancer program in response to
issues raised by the FDA. During the corresponding period in 2001, we incurred
increased sales and marketing expenses in preparation for the potential launch
of Plenaxis for the treatment of hormonally responsive advanced prostate cancer.
Under our agreement with Amgen, we were obligated to pay one-half of all program
costs incurred during 2001 associated with establishing a sales and marketing
infrastructure in the United States for Plenaxis. The Amgen agreement was
terminated in December 2001, and, consequently, we are solely responsible for
all sales and marketing expenses associated with Plenaxis. These expenses are
likely to increase during the remainder of 2002 and thereafter as we continue to
incur costs related to preparing for the possible
Page 11 (of 29)
launch of Plenaxis for the treatment of a defined sub-population of hormonally
responsive advanced prostate cancer patients.
General and administrative expenses for the three months ended June
30, 2002 increased 98% to approximately $2.7 million, from approximately $1.4
million for the corresponding period in 2001. The increase was due primarily
to higher facility-related expenses, as well as personnel-related operating
costs, higher expenses related to business development activities and
increased professional services expenses. We expect that general and
administrative expenses will continue to reflect these higher
facility-related expenses and to increase as we hire additional
administrative personnel to support continued growth of our research,
development and pre-commercialization initiatives.
Net interest income for the three months ended June 30, 2002 decreased
57% to approximately $1.3 million, from approximately $3.0 million for the
corresponding period in 2001. The decrease in net interest income was due
primarily to lower average cash and marketable securities balances coupled with
reduced average interest rates and higher interest expense related to our loan
agreement.
At December 31, 2001, we had federal net operating loss carryforwards
of $51.6 million that will expire in varying amounts through 2021, if not
utilized. Utilization of net operating loss and tax credit carryforwards will be
subject to substantial annual limitations under the Internal Revenue Code of
1986, as amended. The annual limitations may result in the expiration of the net
operating loss and tax credit carryforwards before full utilization.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001
Revenues for the six months ended June 30, 2002 decreased 82% to
approximately $1.0 million, from approximately $5.7 million for the
corresponding period in 2001. The decrease in revenues was the result of the
termination during the fourth quarter of 2001 of our collaboration agreements
with Amgen and Sanofi-Synthelabo. During the second quarter of 2002, we received
a final reimbursement payment from Sanofi-Synthelabo. We do not expect to
receive any additional revenues under these agreements.
Research and development expenses for the six months ended June 30,
2002 decreased 7% to approximately $24.9 million, from approximately $26.7
million for the corresponding period in 2001. The slight decrease in expenses
reflects reduced spending in both our prostate cancer and endometriosis clinical
programs, and the termination during the third quarter of 2001 of our Latranal
clinical program. The reduced spending in our Plenaxis programs resulted from
the repositioning of our prostate cancer program in response to issues raised by
the FDA, and the conclusion of our phase II/III endometriosis clinical study.
These decreases were partially offset by increased spending on clinical and
manufacturing development activities related to our Alzheimer's disease clinical
program, as well as increased activity in our preclinical and manufacturing
development activities for PPI-2458.
Sales and marketing expenses for the six months ended June 30, 2002
decreased 89% to approximately $0.7 million, from approximately $6.4 million for
the corresponding period in 2001. The decrease in sales and marketing expenses
was due to the repositioning of our prostate cancer program in response to
issues raised by the FDA. During the corresponding period in 2001, we incurred
increased sales and marketing expenses in preparation for the potential launch
of Plenaxis for the treatment of hormonally responsive advanced prostate cancer.
Under our agreement with Amgen, we were obligated to pay one-half of all program
costs incurred during 2001 associated with establishing a sales and marketing
infrastructure in the United States for Plenaxis. The Amgen agreement was
terminated in December 2001, and, consequently, we are solely responsible for
all sales and marketing expenses associated with Plenaxis. These expenses are
likely to increase during the remainder of 2002 and thereafter as we continue to
incur costs related to preparing for the possible launch of Plenaxis for the
treatment of a defined sub-population of hormonally responsive advanced prostate
cancer patients.
General and administrative expenses for the six months ended June
30, 2002 increased 63% to approximately $4.9 million, from approximately $3.0
million for the corresponding period in 2001. The increase was due primarily
to higher facility-related expenses, as well as personnel-related operating
costs and increased professional services expenses. We expect that general
and administrative expenses will continue to reflect these facility-related
expenses and to
Page 12 (of 29)
increase as we hire additional administrative personnel to support continued
growth of our research, development and pre-commercialization initiatives.
Net interest income for the six months ended June 30, 2002 decreased
54% to approximately $2.5 million, from approximately $5.5 million for the
corresponding period in 2001. The decrease in net interest income was due
primarily to reduced average interest rates coupled with higher interest expense
related to our loan agreement.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002, we had cash, cash equivalents and marketable
securities of approximately $238.0 million and working capital of approximately
$202.7 million, compared to approximately $266.2 million and $229.0 million,
respectively, at December 31, 2001. We believe that our existing cash and
investments will be sufficient to meet our working capital and capital
expenditure needs through approximately the end of 2004.
For the six months ended June 30, 2002, net cash of approximately $27.4
million was used in operating activities, compared to approximately $19.3
million used in operating activities for the corresponding period in 2001.
During the six months ended June 30, 2002, our use of cash in operations was due
principally to our net loss, partially offset by depreciation and amortization
and an increase in accounts payable. Our investing activities during the six
months ended June 30, 2002 consisted mainly of the purchase, sale and maturity
of marketable securities. Our financing activities for the six months ended June
30, 2002 consisted principally of $0.9 million of proceeds received from the
exercise of common stock options.
In July 2000, in connection with the purchase, through our wholly owned
real estate subsidiary, of our corporate headquarters and research facility in
Waltham, Massachusetts, the subsidiary entered into an acquisition and
construction loan agreement providing for up to $33.0 million in financing for
the acquisition of, and improvements to, the facility. As of June 30, 2002,
$33.0 million was outstanding under the loan agreement. Advances bear interest
at a rate equal to the 30-day LIBOR plus 2.0% (3.84% at June 30, 2002). Interest
is payable monthly in arrears. Principal is due and payable in full on July 30,
2003, subject to two one-year extension options. The loan is secured by the new
facility, together with all fixtures, equipment, improvements and other related
items, and by all rents, income or profits received by our real estate
subsidiary, and is unconditionally guaranteed by us. In addition to this
financing, as of June 30, 2002, we had spent approximately $38.0 million of our
own funds in connection with the build-out and occupancy of this facility. We
occupied this facility during May 2001 and, as planned, are actively seeking to
sublease a portion of the facility. We do not believe that there is any
impairment issue at this time.
In addition to our long-term debt, we have fixed purchase obligations
under various supply agreements. As of June 30, 2002, our long-term debt and
fixed purchase obligations were as follows:
PAYMENTS DUE BY PERIOD
--------------------------------------------------------
LESS THAN 1-3 AFTER
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR YEARS 3 YEARS
----------------------- ----- ------ ----- -------
(IN THOUSANDS)
Long-term debt............................... $33,000 $ ---- $33,000 $----
Unconditional purchase obligations........... 12,442 12,442 ---- ----
--------- --------- ------- -------
Total contractual cash obligations............. $45,442 $12,442 $33,000 $----
========= ========= ======= ======
We expect our funding requirements to increase over the next several
years as we prepare for the possible commercial launch of Plenaxis for the
treatment of a defined sub-population of hormonally responsive advanced prostate
cancer patients, continue with current prostate cancer and endometriosis
clinical trials for Plenaxis and clinical trials for Apan, potentially initiate
an additional clinical program, initiate preclinical trials for additional
product candidates, continue to improve our facility and expand our research and
development initiatives. The amount of these expenditures will depend on
numerous factors, including:
Page 13 (of 29)
o the cost, timing and outcomes of FDA and other regulatory reviews;
o decisions relating to the Plenaxis program made by us;
o the effect of the termination of our Plenaxis corporate
collaborations and our ability to assume the responsibilities
under these agreements or contract with other third parties to do
so;
o the development of sales and marketing resources by us;
o the establishment, continuation or termination of third-party
manufacturing or sales and marketing arrangements for Plenaxis or
our other potential products;
o the establishment of additional strategic or licensing
arrangements with, or acquisitions of, other companies;
o the progress of our research and development activities;
o the scope and results of preclinical testing and clinical trials;
o the rate of technological advances;
o determinations as to the commercial potential of our product
candidates under development;
o the status of competitive products;
o our ability to defend and enforce our intellectual property
rights;
o our ability to sublease a portion of our facility; and
o the availability of additional financing.
At December 31, 2001, we had provided a valuation allowance of $42.5
million for our deferred tax assets. The valuation allowance represents the
excess of the deferred tax asset over the benefit from future losses that could
be carried back if, and when, they occur. Due to anticipated operating losses in
the future, we believe that it is more likely than not that we will not realize
a portion of the net deferred tax assets in the future and we have provided an
appropriate valuation allowance.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, and Statement
of Financial Accounting Standards No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS,
effective for fiscal years beginning after December 15, 2001. Under these rules,
goodwill will no longer be amortized but will be subject to annual impairment
tests in accordance with the statements. Other intangible assets will continue
to be amortized over their useful lives. We applied these rules on accounting
for goodwill and other intangible assets beginning in the first quarter of 2002.
Application of the provisions of these statements did not have any effect on our
consolidated financial position or consolidated results of operations since we
do not have any goodwill or intangibles at this time.
On October 20, 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, or SFAS No.144. SFAS No. 144
supersedes SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
FOR LONG-LIVED ASSETS TO BE DISPOSED OF, however it retains the fundamental
provision of that statement related to the recognition and measurement of the
impairment of long-lived assets to be held and used. In addition, SFAS No. 144
provides additional guidance on estimating cash flows when performing a
recoverability test, requiring that a long-lived asset to be disposed of other
than by sale be classified as an asset held for sale until it is disposed of,
and establishes more restrictive
Page 14 (of 29)
criteria to classify an asset as held for sale. SFAS No. 144 became effective in
the first quarter of 2002. Application of SFAS No. 144 did not have any effect
on our consolidated financial position or consolidated results of operations
since we do not believe that we have any impairments at this time.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES WE FACE.
ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT ARE
CURRENTLY DEEMED IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS, FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. IF ANY OF THESE RISKS ACTUALLY OCCUR, OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY
AFFECTED.
BECAUSE WE HAVE NOT YET MARKETED OR SOLD ANY PRODUCTS AND ANTICIPATE
SIGNIFICANT INCREASES IN OUR OPERATING EXPENSES OVER THE NEXT SEVERAL YEARS,
WE MAY NOT BE PROFITABLE IN THE FUTURE.
We cannot assure you that we will be profitable in the future or, if we
are profitable, that it will be sustainable. All of our potential products are
in the research or development stage. We have not yet marketed or sold any
products, and we may not succeed in developing and marketing any product in the
future. To date, we have derived substantially all of our revenues from payments
under corporate collaboration and license agreements. Due to the termination of
the Amgen and Sanofi-Synthelabo agreements, for the foreseeable future, we do
not expect to have any revenues, other than interest income. In addition, we
expect to continue to spend significant amounts to continue clinical studies,
seek regulatory approval for our existing product candidates, develop commercial
capabilities and expand our facilities. We also intend to spend substantial
amounts to fund additional research and development for other potential
products, enhance our core technologies, and for general and administrative
purposes. As of June 30, 2002, we had an accumulated deficit of approximately
$111.3 million. We expect that our operating expenses will increase
significantly in the near term, primarily due to the termination of the Amgen
and Sanofi-Synthelabo agreements, resulting in significant operating losses for
2002 and the next several years.
IF OUR CLINICAL TRIALS ARE NOT SUCCESSFUL, OR IF WE ARE OTHERWISE UNABLE TO
OBTAIN AND MAINTAIN THE REGULATORY APPROVAL REQUIRED TO MARKET AND SELL OUR
POTENTIAL PRODUCTS, WE WOULD INCUR ADDITIONAL OPERATING LOSSES.
The development and sale of our product candidates are subject to
extensive regulation by governmental authorities. Obtaining and maintaining
regulatory approval typically is costly and takes many years. Regulatory
authorities, most importantly, the FDA, have substantial discretion to terminate
clinical trials, delay or withhold registration and marketing approval in the
United States, and mandate product recalls. Failure to comply with regulatory
requirements may result in criminal prosecution, civil penalties, recall or
seizure of products, total or partial suspension of production or injunction, as
well as other actions as to our potential products or against us. Outside the
United States, we can market a product only if we receive marketing
authorization from the appropriate regulatory authorities. This foreign
regulatory approval process includes all of risks associated with the FDA
approval process, and may include additional risks.
To gain regulatory approval from the FDA and foreign regulatory
authorities for the commercial sale of any product, we must demonstrate in
clinical trials, and satisfy the FDA and foreign regulatory authorities as to,
the safety and efficacy of the product in clinical trials. If we develop a
product to treat a long-lasting disease, such as cancer or Alzheimer's disease,
we must gather data over an extended period of time. There are many risks
associated with our clinical trials. For example, we may be unable to achieve
the same level of success in later trials as we did in earlier ones.
Additionally, data we obtain from preclinical and clinical activities are
susceptible to varying interpretations that could impede regulatory approval.
Further, some patients in our prostate cancer and Alzheimer's disease programs
have a high risk of death, age-related disease or other adverse medical events
that may not be related to our products. These events may affect the statistical
analysis of the safety and efficacy of our products. If we obtain regulatory
approval for a product, the approval will be limited to those diseases for which
our clinical trials demonstrate the product is safe and effective.
In addition, many factors could delay or result in termination of our
ongoing or future clinical trials. For example, a clinical trial may experience
slow patient enrollment or lack of sufficient drug supplies. Patients may
experience adverse medical events or side effects, and there may be a real or
Page 15 (of 29)
perceived lack of effectiveness of, or of safety issues associated with, the
drug we are testing. Future governmental action or existing or changes in FDA
policies or precedents, may also result in delays or rejection of an application
for marketing approval. Accordingly, we may not be able to obtain product
registration or marketing approval for Plenaxis, our drug candidate for the
treatment of hormonally responsive advanced prostate cancer and endometriosis,
or for any of our other product candidates, or regulatory approval may be
conditioned upon significant labeling requirements which could adversely affect
the marketability or value of the product.
To date, none of our product candidates has received regulatory
approval for commercial sale. In June 2001, we received a letter from the FDA
with respect to our NDA for Plenaxis for the treatment of hormonally responsive
advanced prostate cancer, in which the FDA indicated that the information
presented in the NDA was inadequate for approval. The FDA raised concerns over
the occurrence of allergic reactions in a small subset of clinical trial
patients. In addition, the FDA expressed concern that, in a subset of patients
treated beyond the three-month pivotal study time frame, testosterone
suppression was not maintained. We have proposed various alternatives to the FDA
to address these issues and improve the risk/benefit profile of Plenaxis. Based
upon discussions with the FDA at a recent meeting, we now intend to seek
approval for Plenaxis for use in a defined sub-population of advanced prostate
cancer patients for whom the use of existing commercially available hormonal
therapies may not be appropriate. The specific sub-population of patients will
be determined through additional discussions with the FDA. We anticipate
resubmitting to the FDA during the first quarter of 2003 our NDA seeking
approval for this indication.
In addition, we have completed patient accrual in our previously
disclosed clinical study in which patients are being treated with Plenaxis for
three months and then switched to a commercially available hormonal therapy for
an additional two months of treatment. We intend to include safety data from
this study in our NDA resubmission. We can give no assurance this clinical study
will yield positive results or that the results, even if positive, will satisfy
FDA concerns that have been or may be raised. Moreover, we cannot assure
investors that we will be successful in obtaining approval for the
commercialization of Plenaxis for the treatment of any portion of the hormonally
responsive advanced prostate cancer patient population or for any other
indication.
These FDA actions have delayed, and otherwise adversely affected, our
obtaining regulatory approval to market Plenaxis for the treatment of hormonally
responsive advanced prostate cancer. Moreover, there could be further delays due
to FDA review or action, and the FDA could deny approval altogether. If we are
further delayed in obtaining or are unable to obtain this regulatory approval,
or regulatory approval to market our other potential products, we may exhaust
our available resources significantly sooner than we had planned, particularly
given the termination of the Amgen and Sanofi-Synthelabo agreements. If this
were to happen, we would need to either raise additional funds or seek
alternative partners to complete development and commercialization of Plenaxis
and continue our currently planned research and development programs. We cannot
assure you that we would be able to raise the necessary funds or negotiate
additional corporate collaborations on acceptable terms, if at all.
DUE TO THE TERMINATION BY OUR CORPORATE COLLABORATORS OF THEIR AGREEMENTS WITH
US, WE MAY BE UNABLE TO SUCCESSFULLY DEVELOP, MARKET, DISTRIBUTE OR SELL OUR
PRODUCT CANDIDATES.
We depended upon our corporate collaborators, Amgen and
Sanofi-Synthelabo, to provide substantial financial support for the development
and commercialization of Plenaxis. We relied on them to some extent in seeking
regulatory approval in the United States and abroad for Plenaxis for the
treatment of hormonally responsive advanced prostate cancer. In addition, under
our agreement with Amgen, they had assumed principal responsibility for the
manufacture of Plenaxis, and under our agreements with Amgen and
Sanofi-Synthelabo, those parties were responsible for the marketing,
distribution and sale of Plenaxis in their respective licensed territories.
The termination of our agreements with Amgen and Sanofi-Synthelabo may
delay or otherwise adversely affect or prevent the development or
commercialization of Plenaxis for the treatment of hormonally responsive
advanced prostate cancer and endometriosis. We will likely need to devote funds
and other resources to Plenaxis development and commercialization that we had
planned would be available from our collaborators. This could require us to
curtail or terminate one or more of our other drug development programs. Also,
due to increased operating costs, lost revenue and a likely final
Page 16 (of 29)
payment to Amgen associated with the termination of our agreement with them, we
could have to seek additional funding to meet our capital requirements. In
addition, we may have to seek alternative partners to support the continued
development and commercialization of Plenaxis. We cannot assure you that we
would be able to raise the necessary funds or negotiate additional corporate
collaborations on acceptable terms, if at all, and in that event we might have
to curtail or cease operations.
WE MAY BE UNABLE TO ESTABLISH MARKETING AND SALES CAPABILITIES NECESSARY TO
SUCCESSFULLY COMMERCIALIZE OUR POTENTIAL PRODUCTS.
We have no experience in marketing or selling pharmaceutical products
and have very limited marketing and sales resources. To achieve commercial
success for any approved product, we must either develop a marketing and sales
force, as well as the infrastructure to support it, or enter into arrangements
with others to market and sell our products. We may be unable to establish
marketing, sales and distribution capabilities necessary to commercialize and
gain market acceptance for our potential products. If we decide to market and
sell our potential products, including Plenaxis, independently, we would need to
hire a sales force with expertise in pharmaceutical sales. In that event,
recruiting and retaining qualified sales personnel would be critical to our
success. Competition for skilled personnel is intense, and we cannot assure you
that we would be able to attract and retain a sufficient number of qualified
individuals to successfully launch any potential product. In addition,
establishing the expertise necessary to successfully market and sell any product
would require a substantial capital investment. We cannot assure you that we
would have the funds necessary to successfully commercialize Plenaxis for the
treatment of a defined sub-population of hormonally responsive advanced prostate
cancer patients or any other potential product.
In the event that we decide to contract with third parties to provide
sales force capabilities to meet our needs for Plenaxis or any other product
candidates, we cannot assure you that we will be able to enter into such
agreements on acceptable terms, if at all. In addition, co-promotion or other
marketing arrangements with third parties to commercialize potential products
could significantly limit the revenues we derive from these potential products,
and these third parties may fail to commercialize our potential products
successfully. To the extent we enter into any such agreements, the parties to
those agreements may also market products that compete with our products,
further limiting our potential revenue from product sales.
EVEN IF WE RECEIVE APPROVAL FOR THE MARKETING AND SALE OF OUR PRODUCT
CANDIDATES, THEY MAY FAIL TO ACHIEVE MARKET ACCEPTANCE AND, ACCORDINGLY, MAY
NEVER BE COMMERCIALLY SUCCESSFUL.
Many factors may affect the market acceptance and commercial success of
any of our potential products, including:
o the scope of the patient population and the indications for which
Plenaxis or our other product candidates are approved;
o the effectiveness of Plenaxis or any of our other product
candidates, including any potential side effects, as compared to
alternative treatment methods;
o the product labeling or product insert required by the FDA for
Plenaxis and each of our other product candidates;
o the extent and success of our marketing and sales efforts relating
to the marketing and sales of Plenaxis or other potential
products;
o the timing of market entry as compared to competitive products;
o the rate of adoption of Plenaxis or our other product candidates
by doctors and nurses and acceptance by the target patient
population;
o the competitive features of our products as compared to other
products, including the frequency of administration of Plenaxis as
compared to other products, and doctor and patient acceptance of
these features;
Page 17 (of 29)
o the cost-effectiveness of Plenaxis or our other product candidates
and the availability of insurance or other third-party
reimbursement, in particular Medicare, for patients using our
products; and
o unfavorable publicity concerning Plenaxis or any of our other
product candidates or any similar products.
If our products are not commercially successful, we may never become
profitable.
IF WE FAIL TO DEVELOP AND MAINTAIN OUR RELATIONSHIPS WITH THIRD-PARTY
MANUFACTURERS, OR IF THESE MANUFACTURERS FAIL TO PERFORM ADEQUATELY, WE MAY BE
UNABLE TO COMMERCIALIZE OUR PRODUCT CANDIDATES.
Our ability to conduct, or continue to conduct, clinical trials and
commercialize our product candidates, including Plenaxis, will depend in part on
our ability to manufacture, or arrange for third-party manufacture of, our
products on a large scale, at a competitive cost and in accordance with
regulatory requirements. We must establish and maintain a commercial scale
formulation and manufacturing process for each of our potential products for
which we seek marketing approval. We or third-party manufacturers may encounter
difficulties with these processes at any time that could result in delays in
clinical trials, regulatory submissions or in the commercialization of potential
products.
We have no experience in large-scale product manufacturing, nor do we
have the resources or facilities to manufacture products on a commercial scale.
We will continue to rely upon contract manufacturers to produce Plenaxis and
other compounds for later-stage preclinical, clinical and commercial purposes
for a significant period of time. Third-party manufacturers may not be able to
meet our needs as to timing, quantity or quality of materials. If we are unable
to contract for a sufficient supply of needed materials on acceptable terms, or
if we should encounter delays or difficulties in our relationships with
manufacturers, our clinical trials may be delayed, thereby preventing or
delaying the submission of product candidates for, or the granting of,
regulatory approval and the market introduction and subsequent commercialization
of our potential products. Any such delays may lower our revenues and potential
profitability.
We may increase our manufacturing capacity in part by building our own
manufacturing facilities. This activity would require substantial expenditures,
and we would need to hire and train significant numbers of employees to staff a
new facility. If we decide to build our own facility, we may not be able to
develop sufficient manufacturing capacity to produce drug materials for clinical
trials or commercial use.
In addition, we and the third-party manufacturers that we use must
continually adhere to current Good Manufacturing Practice regulations enforced
by the FDA through its facilities inspection program. If our facilities or the
facilities of third-party manufacturers cannot pass a pre-approval plant
inspection, the FDA pre-market approval of our product candidates will not be
granted. In complying with these regulations and foreign regulatory
requirements, we and any of our third-party manufacturers will be obligated to
expend time, money and effort in production, record-keeping and quality control
to assure that our potential products meet applicable specifications and other
requirements. If we or any of our third-party manufacturers fail to comply with
these requirements, we may be subject to regulatory sanctions.
If we make changes in our manufacturing processes, the FDA and
corresponding foreign authorities may require us to demonstrate that the changes
have not caused the resulting drug material to differ significantly from the
drug material previously produced. Also, we may want to rely on results of prior
preclinical studies and clinical trials performed using the previously produced
drug material. Depending on the type and degree of differences between the newer
and older drug material, we may be required to conduct additional animal studies
or human clinical trials to demonstrate that the newly produced drug material is
sufficiently similar to the previously produced drug material.
Any of these factors could prevent, or cause delays in, obtaining
regulatory approvals for, and the manufacturing, marketing or selling of, our
potential products, including Plenaxis, and could also result in significantly
higher operating expenses.
Page 18 (of 29)
Under our collaboration agreement with Amgen, Amgen had control over
certain phases of the manufacturing process for Plenaxis. Accordingly, Amgen had
either entered into or assumed from us agreements with third parties to perform,
or was itself performing, these manufacturing processes. Due to the termination
of our collaboration agreement with Amgen, to assure an adequate supply of drug
product for continued clinical studies and, if Plenaxis is approved for
marketing, for commercial sale, we will need to assume these manufacturing
contracts from Amgen, enter into new agreements with third party manufacturers
or act as manufacturer ourselves. We may elect not to, or may not be able to,
assume the existing contracts from Amgen, and we may be unable to make necessary
alternative arrangements in a timely manner or on favorable terms, if at all.
Moreover, to the extent we must make alternative supply arrangements, even if we
are able to establish these arrangements in a timely manner, the use of a
different manufacturer or the establishment of our own facility will require us
to undergo additional regulatory review and compliance procedures which could
result in additional expenses and further delay the regulatory review and
potential commercialization of Plenaxis for the treatment of a defined
sub-population of hormonally responsive advanced prostate cancer patients. Also,
the establishment of our own facility could itself be costly thereby increasing
our operating costs.
THE LOSS OR FAILURE OF ANY OF OUR THIRD-PARTY MANUFACTURERS COULD DELAY OR
IMPAIR OUR DEVELOPMENT, OR OUR SALE OR CONTINUED SALE, OF PLENAXIS PRODUCTS.
For each stage of Plenaxis production we have relied, and expect in the
near term to continue to rely, on a separate third-party manufacturer, and we
currently have not contracted, and in the near term do not expect to contract,
with second-source suppliers for any of these production stages. Accordingly,
the loss of one or more of these suppliers for any reason, including as a result
of fire, terrorism, acts of God or insolvency or bankruptcy, could result in
delays in, or impair our ability to complete, clinical trials and regulatory
submissions or reviews, and could delay or impair our sale or continued sale of
Plenaxis products. Such delays or impairment, and the associated costs and
expenses, may lower our potential revenues and profitability. While we intend to
evaluate the possibility of a second source of supply at each stage of Plenaxis
production, the number of qualified alternative suppliers is limited, and we
cannot assure investors that we will be able to locate alternative suppliers or
negotiate second supply agreements on reasonable terms. Furthermore, the process
of engineering a new supplier's facility for the production of Plenaxis and
obtaining the necessary FDA approval of the facility would require a substantial
lead-time and could be extremely costly. We cannot assure investors that we will
not lose one or more of our suppliers, or that in such event we would be readily
able to continue the development and commercialization and sale of Plenaxis
products without substantial and costly delays.
BECAUSE WE DEPEND ON THIRD PARTIES TO CONDUCT LABORATORY TESTING AND HUMAN
CLINICAL STUDIES AND ASSIST US WITH REGULATORY COMPLIANCE, WE MAY ENCOUNTER
DELAYS IN PRODUCT DEVELOPMENT AND COMMERCIALIZATION.
We have contracts with a limited number of research organizations to
design and conduct our laboratory testing and human clinical studies. If we
cannot contract for testing activities on acceptable terms, or at all, we may
not complete our product development efforts in a timely manner. To the extent
we rely on third parties for laboratory testing and human clinical studies, we
may lose some control over these activities. For example, third parties may not
complete testing activities on schedule or when we request them to do so. In
addition, these third parties may conduct our clinical trials in a manner
inconsistent with regulatory requirements or otherwise in a manner that yields
misleading or unreliable data. This, or other failures of these third parties to
carry out their duties, could result in significant additional costs and
expenses and could delay or prevent the development and commercialization of our
product candidates.
ALTERNATIVE TREATMENTS ARE AVAILABLE WHICH MAY IMPAIR OUR ABILITY TO CAPTURE
MARKET SHARE FOR OUR POTENTIAL PRODUCTS.
Alternative products exist or are under development to treat the
diseases for which we are developing drugs. For example, the FDA has approved
several drugs for the treatment of prostate cancer that responds to changes in
hormone levels. Even if the FDA approves Plenaxis for commercialization for
Page 19 (of 29)
the treatment of hormonally responsive advanced prostate cancer, the approval
could be limited to a particular group of patients or to administration over a
limited period of time, and Plenaxis may not compete favorably with existing
treatments that already have an established market share. If Plenaxis does not
achieve broad market acceptance as a drug for the treatment of hormonally
responsive advanced prostate cancer, we may not become profitable.
MANY OF OUR COMPETITORS HAVE SUBSTANTIALLY GREATER RESOURCES THAN WE DO AND MAY
BE ABLE TO DEVELOP AND COMMERCIALIZE PRODUCTS THAT MAKE OUR POTENTIAL PRODUCTS
AND TECHNOLOGIES OBSOLETE OR NON-COMPETITIVE.
A biotechnology company such as ours must keep pace with rapid
technological change and faces intense competition. We compete with
biotechnology and pharmaceutical companies for funding, access to new
technology, research personnel and in product research and development. Many of
these companies have greater financial resources and more experience than we do
in developing drugs, obtaining regulatory approvals, manufacturing and
marketing. We also face competition from academic and research institutions and
government agencies pursuing alternatives to our products and technologies. We
expect that all of our products under development will face intense competition
from existing or future drugs. In addition, for each of our product candidates,
we may face increasing competition from generic formulations or existing drugs
whose active components are no longer covered by patents.
Our competitors may:
o successfully identify drug candidates or develop products earlier
than we do;
o obtain approvals from the FDA or foreign regulatory bodies more
rapidly than we do;
o develop products that are more effective, have fewer side effects
or cost less than our products; or
o successfully market products that compete with our products.
The success of our competitors in any of these efforts would adversely
affect our ability to develop, commercialize and market our product candidates.
IF WE ARE UNABLE TO OBTAIN AND ENFORCE VALID PATENTS, WE COULD LOSE ANY
COMPETITIVE ADVANTAGE WE MAY HAVE.
Our success will depend in part on our ability to obtain patents and
maintain adequate protection of our technologies and potential products. If we
do not adequately protect our intellectual property, competitors may be able to
use our technologies and erode any competitive advantage we may have. For
example, if we lose our patent protection for Plenaxis, another party could
produce and market the compound in direct competition with us. Some foreign
countries lack rules and methods for defending intellectual property rights and
do not protect proprietary rights to the same extent as the United States. Many
companies have had difficulty protecting their proprietary rights in foreign
countries.
Patent positions are sometimes uncertain and usually involve complex
legal and factual questions. We can protect our proprietary rights from
unauthorized use by third parties only to the extent that our proprietary
technologies are covered by valid and enforceable patents or are effectively
maintained as trade secrets. We currently own or have exclusively licensed 19
issued United States patents. We have applied, and will continue to apply, for
patents covering both our technologies and products as we deem appropriate.
Others may challenge our patent applications or our patent applications may not
result in issued patents. Moreover, any issued patents on our own inventions, or
those licensed from third parties, may not provide us with adequate protection,
or others may challenge the validity of, or seek to narrow or circumvent, these
patents. Third-party patents may impair or block our ability to conduct our
business. Additionally, third parties may independently develop products similar
to our products, duplicate our unpatented products, or design around any
patented products we develop.
Page 20 (of 29)
IF WE ARE UNABLE TO PROTECT OUR TRADE SECRETS AND PROPRIETARY INFORMATION, WE
COULD LOSE ANY COMPETITIVE ADVANTAGE WE MAY HAVE.
In addition to patents, we rely on a combination of trade secrets,
confidentiality, nondisclosure and other contractual provisions, and security
measures to protect our confidential and proprietary information. These measures
may not adequately protect our trade secrets or other proprietary information.
If these measures do not adequately protect our rights, third parties could use
our technology, and we could lose any competitive advantage we may have. In
addition, others may independently develop similar proprietary information or
techniques, which could impair any competitive advantage we may have.
IF OUR TECHNOLOGIES, PROCESSES OR POTENTIAL PRODUCTS CONFLICT WITH THE PATENTS
OF COMPETITORS, UNIVERSITIES OR OTHERS, WE COULD HAVE TO ENGAGE IN COSTLY
LITIGATION AND BE UNABLE TO COMMERCIALIZE THOSE PRODUCTS.
Our technologies, processes or potential products may give rise to
claims that they infringe other patents. A third party could force us to pay
damages, stop our use of these technologies or processes, or stop our
manufacturing or marketing of the affected products by bringing a legal action
against us for infringement. In addition, a third party could require us to
obtain a license to continue to use the technologies or processes or manufacture
or market the affected products, and we may not be able to do so. We believe
that significant litigation will continue in our industry regarding patent and
other intellectual property rights. If we become involved in litigation, it
could consume a substantial portion of our resources. Even if legal actions were
meritless, defending a lawsuit could take significant time, be expensive and
divert management's attention from other business concerns.
IF THIRD PARTIES TERMINATE OUR LICENSES, WE COULD EXPERIENCE DELAYS OR BE UNABLE
TO COMPLETE THE DEVELOPMENT AND COMMERCIALIZATION OF OUR POTENTIAL PRODUCTS.
We license some of our technology from third parties. Termination of
our licenses could force us to delay or discontinue some of our development and
commercialization programs. For example, if Advanced Research and Technology
Institute, Inc., the assignee of Indiana University Foundation, terminated our
license with them, we could have to discontinue development and
commercialization of our Plenaxis products. We cannot assure you that we would
be able to license substitute technology in the future. Our inability to do so
could impair our ability to conduct our business because we may lack the
technology, or the necessary rights to technology, required to develop and
commercialize our potential products.
OUR POTENTIAL REVENUES WILL DIMINISH IF WE FAIL TO OBTAIN ACCEPTABLE PRICES OR
ADEQUATE REIMBURSEMENT FOR OUR PRODUCTS FROM THIRD-PARTY PAYORS.
The continuing efforts of government and third-party payors to contain
or reduce the costs of health care may limit our commercial opportunity. If
government and other third-party payors do not provide adequate coverage and
reimbursement for our products, physicians may not prescribe them. If we are
unable to offer physicians comparable or superior financial motivation to use
our products, we may not be able to generate significant revenues. In some
foreign markets, pricing and profitability of prescription pharmaceuticals are
subject to government control. In the United States, we expect that there will
continue to be federal and state proposals for similar controls. In addition,
increasing emphasis on managed care in the United States will continue to put
pressure on the pricing of pharmaceutical products. Cost control initiatives
could decrease the price that we receive for any products in the future.
Further, cost control initiatives could impair or diminish our ability or
incentive, or the ability or incentive of potential partners, to commercialize
our products, and our ability to earn revenues from this commercialization.
Page 21 (of 29)
Our ability to commercialize pharmaceutical products, alone or with
collaborators, may depend in part on the availability of reimbursement for our
products from:
o government and health administration authorities;
o private health insurers; and
o other third party payors, including Medicare and Medicaid.
We cannot predict the availability of reimbursement for newly approved
health care products. Third-party payors, including Medicare, are increasingly
challenging the prices charged for medical products and services. Government and
other third-party payors increasingly are limiting both coverage and the level
of reimbursement for new drugs and, in some cases, refusing to provide coverage
for a patient's use of an approved drug for purposes not approved by the FDA.
Third-party insurance coverage may not be available to patients for any of our
products.
WE MAY BE UNABLE TO FIND SUITABLE TENANTS FOR A PORTION OF OUR FACILITY.
In May 2001, we moved to a new 175,000 square foot facility in Waltham,
Massachusetts. We are currently seeking to sublease a portion of this facility
to third parties. We may not be able to find suitable sub-tenants to occupy this
space in a timely manner, if at all. If we are unable to find suitable
sub-tenants in a timely manner, we may not be able to partially offset with
rental income the substantial mortgage payments and other operating expenses
associated with our facility.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL
SKILLED PERSONNEL, WE MAY BE UNABLE TO PURSUE OUR PRODUCT DEVELOPMENT AND
COMMERCIALIZATION EFFORTS.
We depend substantially on the principal members of our management and
scientific staff, including Malcolm L. Gefter, Ph.D., our Chief Executive
Officer and Chairman of the Board, and William K. Heiden, our President and
Chief Operating Officer. We do not have employment agreements with any of our
executive officers. Any officer or employee can terminate his or her
relationship with us at any time and work for one of our competitors. The loss
of these key individuals could result in competitive harm because we could
experience delays in our product research, development and commercialization
efforts without their expertise.
Recruiting and retaining qualified scientific personnel to perform
future research and development work also will be critical to our success.
Competition for skilled personnel is intense and the turnover rate can be high.
We compete with numerous companies and academic and other research institutions
for experienced scientists. This competition may limit our ability to recruit
and retain qualified personnel on acceptable terms. Failure to attract and
retain qualified personnel would prevent us from continuing to develop our
potential products, enhancing our technologies and launching our products
commercially. Our planned activities may require the addition of new personnel,
including management, and the development of additional expertise by existing
management personnel. The inability to retain these personnel or to develop this
expertise could prevent, or result in delays in, the research, development and
commercialization of our potential products.
WE MAY HAVE SUBSTANTIAL EXPOSURE TO PRODUCT LIABILITY CLAIMS AND MAY NOT HAVE
ADEQUATE INSURANCE TO COVER THOSE CLAIMS.
We may be held liable if any product we develop, or any product made by
others using our technologies, causes injury. We have only limited product
liability insurance coverage for our potential products in clinical trials. We
intend to expand our product liability insurance coverage for any of our
products for which we obtain marketing approval. However, this insurance may be
prohibitively expensive or may not fully cover our potential liabilities. Our
inability to obtain adequate insurance coverage at an acceptable cost could
prevent or inhibit the commercialization of
Page 22 (of 29)
our products. Our collaboration agreements with Amgen and Sanofi-Synthelabo
included, and we anticipate that the agreements we are finalizing with them
regarding the termination of those collaborations will include, an
indemnification of them for liabilities associated with the development and
commercialization of Plenaxis. If a third party, including a former
collaborator, sues us for any injury, or for indemnification for losses, arising
out of products made by us or using our technologies, our liability could exceed
our total assets.
WE USE HAZARDOUS CHEMICALS AND RADIOACTIVE AND BIOLOGICAL MATERIALS IN OUR
BUSINESS AND ANY CLAIMS RELATING TO THE HANDLING, STORAGE OR DISPOSAL OF THESE
MATERIALS COULD BE TIME CONSUMING AND COSTLY.
Our research and development processes involve the controlled use of
hazardous materials, including chemicals and radioactive and biological
materials. For example, the health risks associated with accidental exposure to
Plenaxis include temporary impotence or infertility and harmful effects on
pregnant women. Our operations also produce hazardous waste products. We cannot
completely eliminate the risk of accidental contamination or discharge from
hazardous materials and any resultant injury. Federal, state and local laws and
regulations govern the use, manufacture, storage, handling and disposal of
hazardous materials. Compliance with environmental laws and regulations is
necessary and expensive. Current or future environmental regulations may impair
our research, development or production efforts. We may be required to pay
fines, penalties or damages in the event of noncompliance or the exposure of
individuals to hazardous materials.
From time to time, third-parties have also worked with hazardous
materials in connection with our agreements with them. We have agreed to
indemnify our present and former collaborators in some circumstances against
damages and other liabilities arising out of development activities or products
produced in connection with these collaborations.
IF WE ENGAGE IN AN ACQUISITION, WE WILL INCUR A VARIETY OF COSTS AND MAY NEVER
REALIZE THE ANTICIPATED BENEFITS OF THE ACQUISITION.
If appropriate opportunities become available, we may attempt to
acquire businesses, or acquire or in-license products or technologies, that we
believe are a strategic fit with our business. We currently have no commitments
or agreements for any acquisitions, nor are there any negotiations as to any
specific transaction. If we do undertake any transaction of this sort, the
process of integrating an acquired business, or an acquired or in-licensed
product or technology, may result in unforeseen operating difficulties and
expenditures and may absorb significant management attention that would
otherwise be available for the ongoing development of our business. Moreover, we
may fail to realize the anticipated benefits of any transaction of this sort. To
the extent we issue stock in a transaction, the ownership interest of our
stockholders will be diluted. Transactions of this kind could also cause us to
incur debt, expose us to future liabilities and result in amortization expenses
related to goodwill and other intangible assets.
THE MARKET PRICE OF OUR COMMON STOCK MAY EXPERIENCE EXTREME PRICE AND VOLUME
FLUCTUATIONS.
The market price of our common stock may fluctuate substantially due to
a variety of factors, including, but not limited to:
o announcement of FDA approval or disapproval of Plenaxis for the
treatment of hormonally responsive advanced prostate cancer or any
of our other product candidates;
o failure or delay by former or future corporate collaborators in
performing their obligations, or disputes or litigation regarding
those obligations;
o failure or delay by third-party manufacturers in performing their
supply obligations or disputes or litigation regarding those
obligations;
o the success rate of our discovery efforts and clinical trials;
o our ability or the ability of third parties to commercialize our
product candidates and the timing of commercialization;
o announcements of technological innovations or new products by us
or our competitors;
Page 23 (of 29)
o developments or disputes concerning patents or proprietary rights,
including announcements of claims of infringement, interference or
litigation against us or our licensors;
o announcements concerning our competitors, or the biotechnology or
pharmaceutical industry in general;
o public concerns as to the safety of our products or our
competitors' products;
o changes in government regulation of the pharmaceutical or medical
industry;
o changes in the reimbursement policies of third-party insurance
companies or government agencies;
o actual or anticipated fluctuations in our operating results;
o changes in financial estimates or recommendations by securities
analysts;
o sales of large blocks of our common stock;
o changes in accounting principles; and
o the loss of any of our key scientific or management personnel.
In addition, the stock market has experienced extreme price and volume
fluctuations. The market prices of the securities of biotechnology companies,
particularly companies like ours without current product revenues and earnings,
have been highly volatile, and may continue to be highly volatile in the future.
This volatility has often been unrelated to the operating performance of
particular companies. In the past, securities class action litigation has often
been brought against companies that experience volatility in the market price of
their securities. Whether or not meritorious, litigation brought against us
could result in substantial costs and a diversion of management's attention and
resources.
WE EXPECT THAT OUR QUARTERLY RESULTS OF OPERATIONS WILL FLUCTUATE, AND THIS
FLUCTUATION COULD CAUSE OUR STOCK PRICE TO DECLINE.
Our quarterly operating results have fluctuated in the past and are
likely to do so in the future. These fluctuations could cause our stock price to
decline. Some of the factors that could cause our operating results to fluctuate
include:
o the timing and level of expenses related to the development and
commercialization of our Plenaxis products leading to revenues
from product sales;
o the timing and level of expenses related to our other research and
development programs; and
o the timing of our commercialization of other products resulting in
revenues.
Due to the possibility of fluctuations in our revenues and expenses, we
believe that quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER AND BY-LAWS, OUR RIGHTS AGREEMENT AND
CERTAIN PROVISIONS OF DELAWARE LAW MAY MAKE AN ACQUISITION OF US MORE DIFFICULT,
EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.
Provisions in our certificate of incorporation and by-laws may delay or
prevent an acquisition of us or a change in our management. Also, because we are
incorporated in Delaware, we are governed by the provisions of Section 203 of
the Delaware General Corporation Law, which may prohibit or delay large
stockholders, in particular those owning 15% or more of our outstanding voting
stock, from merging or combining with us. In addition, the rights issued under
our rights agreement may be a substantial deterrent to a person acquiring 10% or
more of our common stock without the approval of our board of directors. These
provisions in our charter and by-laws, rights agreement and under Delaware law
could reduce the price that investors might be willing to pay for shares of our
common stock in the future and result in the market price being lower that it
would be without these provisions.
Page 24 (of 29)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The primary objective of our investment activities is to preserve
principal while at the same time maximizing the income we receive from our
investments without significantly increasing risk. Some of the securities that
we invest in may have market risk. This means that an increase in prevailing
interest rates may cause the principal amount of the investment to decrease. To
minimize this risk in the future, we maintain our portfolio of cash equivalents
and short-term investments in a variety of securities, including commercial
paper, money market funds and government and non-government debt securities. A
hypothetical 100 basis point increase in interest rates would result in an
approximate $0.5 million decrease in the fair value of our investments as of
June 30, 2002. Due to the conservative nature of our investments and relatively
short duration, interest rate risk is mitigated. As of June 30, 2002,
approximately 98% of our total portfolio will mature in one year or less, with
the remainder maturing in less than two years.
In connection with the purchase of our facility in July 2000, our
wholly owned real estate subsidiary executed an acquisition and construction
loan agreement that provides for up to $33.0 million in borrowings at a floating
interest rate indexed to 30-day LIBOR. Concurrent with that transaction, the
subsidiary also entered into an interest rate cap agreement which limits
exposure to interest rate increases above a certain threshold. Due to the
decrease in interest rates since we entered into this interest rate cap, we
currently do not believe that there is material interest rate risk exposure with
respect to the loan agreement. In addition, we believe that we have mitigated
our risk relating to significant adverse fluctuations in interest rates with
respect to borrowings under the loan agreement, and we do not believe that a 10%
change in interest rates would have a material impact on our results of
operations or cash flows.
Page 25 (of 29)
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We held our Annual Meeting of Stockholders on May 22, 2002 to (i) elect
seven directors, (ii) approve our Second Amended and Restated 1995 Stock Plan,
as amended, and (iii) ratify the appointment by our Board of Directors of Ernst
& Young LLP as our independent auditors for fiscal year 2002.
The following nominees were elected, by the vote set forth below, to
hold office until the next annual meeting of stockholders and until their
successors are duly elected and qualified:
NOMINEE: NUMBER OF VOTES FOR: NUMBER OF VOTES WITHHELD:
- ------- ------------------- ------------------------
Malcolm L. Gefter, Ph.D. 41,224,711 7,510,130
G. Leonard Baker, Jr. 47,879,189 855,652
Henry F. McCance 47,879,189 855,652
William R. Ringo 46,594,889 2,139,952
David B. Sharrock 47,879,189 855,652
Patrick J. Zenner 39,797,607 8,937,234
Albert L. Zesiger 47,879,189 855,652
In addition, the stockholders approved the Second Amended and Restated
1995 Stock Plan, as amended to increase by 3,000,000 the number of shares of
common stock, par value $.01 per share, authorized for issuance under the Plan,
by the following vote:
FOR: AGAINST: ABSTAIN:
- ---------- --------- --------
21,026,985 5,216,978 51,474
The stockholders also ratified the appointment by the Board of
Directors of Ernst & Young LLP as our independent auditors for fiscal year 2002
by the following vote:
FOR: AGAINST: ABSTAIN:
- ---------- -------- --------
48,430,490 291,991 12,360
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBIT
NUMBER EXHIBIT
------- -------
3.1 Amended and Restated Certificate of Incorporation (2)
3.2 Second Amended and Restated By-Laws (5)
4.1 Specimen certificate representing shares of common stock (1)
4.2 Specimen certificate representing shares of common stock
(including Rights Agreement Legend) (3)
Page 26 (of 29)
4.3 Rights Agreement between the Registrant and American Stock
Transfer & Trust Company, as Rights Agent (4)
4.4 Form of Certificate of Designations of Series A Junior
Participating Preferred Stock (attached as Exhibit A to the
Rights Agreement filed as Exhibit 4.5 hereto) (4)
4.5 Form of Rights Certificate (attached as Exhibit B to the
Rights Agreement filed as Exhibit 4.5 hereto) (4)
10.1 Amendment No. 1 to the Second Amended and Restated 1995 Stock
Plan (6)
10.2 Letter Agreement dated as of May 9, 2002 between the
Registrant and William K. Heiden
10.3 Promissory Note dated May 16, 2002 executed by William K.
Heiden in favor of the Registrant
10.4 Letter Agreement dated as of May 9, 2002 between the
Registrant and Malcolm L. Gefter, Ph.D.
10.5 Letter Agreement dated as of May 9, 2002 between the
Registrant and Kevin F. McLaughlin
10.6 Letter Agreement dated as of May 9, 2002 between the
Registrant and Marc B. Garnick, M.D.
99.1 Certification of CEO and CFO Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
- ----------------
(1) Incorporated by reference to Registration Statement on Form S-1
(Registration No. 333-96351) initially filed with the Securities and
Exchange Commission on February 8, 2000 and declared effective on April
26, 2000.
(2) Incorporated by reference to Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000 filed with the Securities and Exchange
Commission on June 7, 2000.
(3) Incorporated by reference to Registration Statement on Form S-1
(Registration No. 333-54342) initially filed with the Securities and
Exchange Commission on January 26, 2001 and declared effective on
February 14, 2001.
(4) Incorporated by reference to Registration Statement on Form 8-A filed
with the Securities and Exchange Commission on January 26, 2001.
(5) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 2001 filed with the Securities and Exchange
Commission on April 1, 2002.
(6) Incorporated by reference to Registration Statement on Form S-8
(Registration No. 333-90734) filed with the Securities and Exchange
Commission on June 18, 2002.
(b) Reports Submitted on Form 8-K
On April 26, 2002, we filed a Current Report on Form 8-K to
file under Item 5 (Other Events) a copy of our Press Release dated
April 26, 2002.
Page 27 (of 29)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
PRAECIS PHARMACEUTICALS INCORPORATED
Date: August 12, 2002 By /s/ Kevin F. McLaughlin
-----------------------------------------------
Kevin F. McLaughlin
Chief Financial Officer, Senior Vice President,
Treasurer and Secretary (DULY AUTHORIZED
OFFICER AND PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
Page 28 (of 29)
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT
------- -------
3.1 Amended and Restated Certificate of Incorporation (2)
3.2 Second Amended and Restated By-Laws (5)
4.1 Specimen certificate representing shares of common stock (1)
4.2 Specimen certificate representing shares of common stock
(including Rights Agreement Legend) (3)
4.3 Rights Agreement between the Registrant and American Stock
Transfer & Trust Company, as Rights Agent (4)
4.4 Form of Certificate of Designations of Series A Junior
Participating Preferred Stock (attached as Exhibit A to the
Rights Agreement filed as Exhibit 4.5 hereto) (4)
4.5 Form of Rights Certificate (attached as Exhibit B to the
Rights Agreement filed as Exhibit 4.5 hereto) (4)
10.1 Amendment No. 1 to the Second Amended and Restated 1995 Stock
Plan (6)
10.2 Letter Agreement dated as of May 9, 2002 between the
Registrant and William K. Heiden
10.3 Promissory Note dated May 16, 2002 executed by William K.
Heiden in favor of the Registrant
10.4 Letter Agreement dated as of May 9, 2002 between the
Registrant and Malcolm L. Gefter, Ph.D.
10.5 Letter Agreement dated as of May 9, 2002 between the
Registrant and Kevin F. McLaughlin
10.6 Letter Agreement dated as of May 9, 2002 between the
Registrant and Marc B. Garnick, M.D.
99.1 Certification of CEO and CFO Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
- ----------------
(1) Incorporated by reference to Registration Statement on Form S-1
(Registration No. 333-96351) initially filed with the Securities and
Exchange Commission on February 8, 2000 and declared effective on April
26, 2000.
(2) Incorporated by reference to Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000 filed with the Securities and Exchange
Commission on June 7, 2000.
(3) Incorporated by reference to Registration Statement on Form S-1
(Registration No. 333-54342) initially filed with the Securities and
Exchange Commission on January 26, 2001 and declared effective on
February 14, 2001.
(4) Incorporated by reference to Registration Statement on Form 8-A filed
with the Securities and Exchange Commission on January 26, 2001.
(5) Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 2001 filed with the Securities and Exchange
Commission on April 1, 2002.
(6) Incorporated by reference to Registration Statement on Form S-8
(Registration No. 333-90734) filed with the Securities and Exchange
Commission on June 18, 2002.
Page 29 (of 29)